Watching for Gold to Slip Up

 | Sep 04, 2013 | 8:00 AM EDT
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On the weekly time frame, gold has been experiencing a corrective rally within a larger downtrend -- or, at least, that's the way some analysts will look at the chart below. Let me walk you through an upcoming key level on the SPDR Gold Trust (GLD) -- one that could stall the rally that started late June.

GLD -- Weekly
Source: Dynamic Trader

I have illustrated three prior rallies on this chart, and they all brought the stock down by similar amounts. The first swing lasted $269.40, the second was $268.80 and the third was $271.40. Healthy declines followed each of these rallies. I have projected all three of these prior rally swings from the June lows, and they are a part of the Fibonacci price-cluster of resistance that's not too far above the current price.

Besides those three projections, I also ran a 100% projection of the first swing up from the June lows -- $169.30 -- and projected that from the first pullback low. There is also a 0.618 retracement of one of the prior high-to-low swings, as illustrated on this same chart.

Gold Futures -- Weekly
Source: Dynamic Trader

This tells us that, on the chart of the continuous gold-futures contract, we're looking at a confluence of at least five price relationships between $1,441.10 and $1,450.80 per ounce. In fact, the daily chart also appears to show an overlapping price extension in this same area, with the equivalent GLD range at $139.01 to $140.41.  

Bottom line: In the coming weeks, I'll be stalking gold for a possible short-side trade if the price tests this area and fails to clear it by a decent margin. If this transpires, I will look for a sell trigger on a 15- or 30-minute chart, and then define my risk above the high made prior to the sell trigger or above the top end of the price cluster zone. (For more information on triggers, click here.)

If, instead, this key zone is cleared, I'll have to consider that I'm wrong regarding this trade setup. Such a move may also mean that the late-June low may become more important in the bigger picture.

So let's see what gold does around this key price decision and then trade accordingly. If I start to see this scenario start to unfold, I will post an updated chart for you in Columnist Conversation for you with some potential downside targets.

For more information on trade triggers, please refer here

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